by Lance T. Izumi, Fellow in California Studies
Pacific Research Institute
July 25, 2000

Announcer lead: Time for Perspectives. Lance Izumi says to beware the high spending in the new state budget.

With California's economy booming, few people seem worried about the record $100-billion state budget signed last month by Governor Gray Davis. Yet, history tells us that today's increased spending could lead to tomorrow's fiscal disaster.

To see just how big the new state budget is, consider that it is 21 percent larger than last year's budget. In fact, the budget increases in the first two years of Gov. Davis' term are more than the combined increases that occurred during Pete Wilson's eight years in office. With such massive increases, it's not surprising to learn that the state budget has doubled in a decade.

Of course, increased spending means increased taxes paid by working Californians. According to Assemblyman Tom McClintock, the average family will pay $2,160 more in taxes to support the increased spending in the new budget.

Even more troubling, though, is the fact that increased spending often gets locked into the budget, with disastrous consequences when revenues eventually decline. Steve Kroes, former research director for the California Taxpayers Association, points out that when the California economy is strong, tax revenues grow quickly. State lawmakers typically commit most of this added revenue to increased spending, as was done in the new budget. However, when a recession arrives and revenues slow, spending commitments have been ratcheted up to unsustainable levels. The result: large deficits and calls for tax increases.

This same scenario occurred in the late 1980s. At that time, state lawmakers increased spending at a high rate which resulted in a large deficit and a record tax increase in 1991 when the state economy crashed. Had lawmakers limited spending increases to more reasonable levels, the deficit and the tax increase could have been avoided.

Gov. Davis has said that he didn't cut taxes more, despite a huge budget surplus, because he feared that the next recession could be right around the corner. Yet, if he truly fears a coming recession, he and the Legislature need to start reining in state spending before fiscal history repeats itself.

With a perspective, I'm Lance Izumi.